Inheritance tax battle looms in US

LINES DRAWN The tax's opponents want it to be permanently repealed, while proponents say that nixing it will only benefit a few of the very wealthy

AFP , WASHINGTON

A showdown is looming in the US Congress over the inheritance tax, with some pressing for repeal of what they consider an unfair levy, and others saying the move would be a giveaway to the super-rich.

US President George W. Bush and key Republican leaders are pushing for permanent repeal of what some derisively call the "death tax" even as activists opposing this argue the move would be a fresh blow to the federal budget deficit and a step toward a bigger rich-poor gap.

The 2001 tax cut progressively phased out this tax by 2010, but -- because of the budget consequences of a permanent repeal -- would restore the tax to its original level in 2011.

This situation practically forces Congress to act on a permanent plan or leave families and business owners in limbo. Senate Majority Leader Bill Frist said he hoped to bring the issue to a vote early this month.

Critics argue that with a rate as high as 55 percent in the tax that would be restored in 2011, the US inheritance tax burden is the biggest in the world, and takes money away from capital formation.

The president argues for the elimination of the tax, saying "government should not tax farmers or small business owners twice -- once when you make your money and a second time when you try to pass the fruits of your life's work on to your loved ones."

But a group of activists joined by some wealthy individuals say repealing the inheritance tax would be a giveaway of as much as US$1 trillion over 10 years to a small group of multimillionaires.

An analysis by activist groups Public Citizen and United for a Fair Economy (UFE) concluded that with the current exemption of US$2 million, fewer than one-fourth of 1 percent of estates would be subject to tax this year.

"Americans believe that taxes should be based on the ability to pay, and in this respect the estate tax is the fairest of all taxes," UFE's Lee Farris said.

She said that contrary to the claims of the repeal activists, few if any small family farms or businesses pay the estate tax with current exemption levels.

Farris said the analysis also showed the campaign to eliminate the estate tax is financed by some of the wealthiest US families, including the Walton family owning much of Wal-Mart and the Mars family owning the eponymous candy conglomerate.

The coalition report said that 18 families worth a total of US$185.5 billion have financed and coordinated a 10-year effort to repeal the estate tax, a move that would collectively net them a windfall of US$71.6 billion.

Those opposing the repeal have drawn support from some wealthy people as well, including Bill Gates senior, father of the Microsoft chairman who is the worlds' richest individual.

Gates said recently that the effort to repeal the tax was an "appalling" move to funnel more money to rich families.

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